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REQUEST FOR COUNCIL ACTION Date: 10/7/2024 Item No.: 7.a. Department Approval City Manager Approval Item Description: Receive Utility Rate Study Presentation and Discussion 1 2 Background 3 Unlike many city services that are supported by property taxes, the City’s utility or enterprise operations 4 are funded primarily by user fees and are operated as separate, stand-alone functions. The City 5 engaged Ehlers to perform an update to the utility rate study of the Water, Sanitary Sewer and Storm 6 Drainage Funds from 2022. Ehlers will be presenting their analysis at the October 7, 2024, City Council 7 meeting. Over the past few years, city staff have curtailed capital improvements to allow for water and 8 storm drainage funds to build their minimum fund reserves. 9 10 Water Fund Operations 11 The updated Utility Rate Study done by Ehlers on the Water Fund recommends a 5.5% increase in rates 12 for 2025 to cover fixed and variable costs, debt service and replenishment of fund reserves. The 13 previous study recommended an 8% increase in rates for 2025. As a result of curtailment of capital 14 improvements, this fund is starting to recover and build reserves. One of the main costs is the purchase 15 of water from St. Paul Regional Water. Their increases for 2025 are roughly 8% and then drop to a 5% 16 increase in 2026. In addition, this fund is still working on building fund reserves to cover the minimum 17 for operations and the amount needed for capital, the study anticipates hitting these reserve levels in 18 2031. 19 20 Storm Drainage Operations 21 The City provides for the management of storm water drainage to prevent flooding and pollution control, 22 as well as the street sweeping program. In 2022, the Utility Rate Study done by Ehlers recommended a 23 33% increase for 2023-2024 to cover fixed and variable costs of the Storm Drainage fund and a 2.5% 24 increase thereafter. Through the increases in 2023 and 2024 and the curtailment of capital 25 improvements made by Public Works, the fund is now on course to be able to cover operations and 26 capital infrastructure needs for the next five years. The current update of the utility rate study 27 recommends a 0% increase. 28 29 Sanitary Sewer Operations 30 The City maintains a sanitary sewer collection system to ensure the public’s health and general 31 welfare. The previous study recommended a 2% increase to mainly cover the cost increases of 32 Metropolitan Council Environmental Services. The current update of the utility rate study recommends a 33 0% increase. 34 35 36 Policy Objectives 37 To provide a sustainable funding model for the city's Water, Sanitary Sewer and Storm Drainage Funds. 38 39 Equity Impact Summary Page 1 of 2 Qbhf!3!pg!6:7